Mark Mulligan midiaresearch.com 10/29/14
YouTube is the globe’s leading digital music service but for its size delivers comparatively little back to the music industry in direct revenue. Even the one billion dollars paid out in Content ID revenues only represents $0.14 for each of its one billion users per year, since the launch of Content ID in 2007. Now YouTube is poised to launch its long anticipated subscription service, Music Key. It should prove to be among the most compelling music product offerings in the marketplace, yet YouTube’s net impact on the subscriptions’ sector will still be net negative with its free tier sucking the oxygen from its premium competitors.
YouTube Is The Globe’s Most Pervasive Music Service But Most Of Its ‘Active’ Users Are Relatively Inactive
Scale is YouTube’s biggest ally but its active music audience is somewhat smaller than the headline reported billion monthly users. Of those that watch music videos, 53% only watch music videos a maximum of three times a month, while just 47% watch a few times a week or more. 15% are super engaged daily users who use YouTube as their primary music app, often the music app of choice.
This is the target market for MusicKey, which has the potential to transform the streaming market, but not for the right reasons:
Music Key could kill Vevo’s golden goose: If we translate this frequency data to Vevo’s reported 243 million unique global we see 37 million daily users. This 15% generates approximately 67% of Vevo’s total views, while 53% is responsible for generating just 8%. This matters because these super users are the target audience for Music Key, which includes removal of ads from music videos. A successful Music Key could leave a gaping hole in music ad revenue. For YouTube, which has a roster of successful non-music creators like PewDiePie and Smosh to fall back on, this would be an inconvenience. For Vevo it would be disastrous. So do not be surprised if Vevo finds a way to be part of Music Key.
YouTube will take more than Music Key gives: Just 7% consumers say they would pay for a YouTube subscription service without ads and including extra content (little surprise considering Google makes it so easy for consumers to get apps like AdBlock and YouTube rippers). But 25% say they will never pay for a subscription service because they get all the music they need for free from YouTube. The net balance is clearly negative. If we discount both rates and apply them to the US and UK population, Music Key would contribute about $400 million dollars in revenue in one year but would be responsible for more than $2.6 billion in lost subscription revenue, meaning its net impact would be around -$2.3 billion.
Streaming transforms promotion into product
YouTube is more important as a promotional platform to labels and artists than ever but the demarcation between discovery and consumption is becoming indistinguishable. For most YouTube users, it is the destination not the discovery journey. It is time for more record label execs to understand that their advert is now actually the product too. This is why the stakes are so high with YouTube.
If YouTube can fully harness its rich set of non-core catalogue assets, such as live concert streams, artist hangouts, YouTube sessions etc. then Music Key has the potential to be the most compelling music subscription offer yet. But YouTube’s innovation has never been the problem, it is its impact on the wider market that matters most. Fair or not, YouTube cannot be judged by the same standards that are applied to the rest of the marketplace.